Redundancy pay: get the biggest payout if you lose your job

Almost £5 billion was paid out in redundancy payments in the UK in the year ending 31st March 2012. According to new research from law firm EMW, that's an increase of 9% on the total for 2010/11, as well as an all-time high.

Parting payments

EMW reckons that a total of £18.4 billion has been paid to redundant employees since the recession began in September 2008. Here are the payouts for the past three years:

Year*

Payout

2009/10

£4.5 billion

2010/11

£4.5 billion

2011/12

£4.9 billion

* Year ending 31 March

EMW warns that the recent rise in redundancy payouts has been driven by increasing numbers of redundancies among government employees. In contrast, private-sector redundancies have tailed off slightly since the 2008/09 recession.

What's more, thanks to the public sector's strong trade union links, EMW states that: "Redundancy payouts in the public sector tend to be higher than those available in equivalent private-sector jobs. Public-sector employers often have the benefit of historical enhanced redundancy schemes."

For example, the National Health Service - the UK's biggest employer with a staff of 1.4 million - awarded nearly £170 million in redundancy payments in 2010/11. Every penny of this sum must be recouped through higher taxes or increased government borrowing.

Average payout falls 2%

In total, EMW calculates that UK employers made 410,000 redundancy payments in 2011/12, up nearly a ninth (11%) on the 370,000 payouts for 2010/11.

Overall, the average redundancy settlement in 2011/12 was £11,951. This amounts to almost six months' pay for workers earning the UK's median salary of £26,200 for full-time employees. EMW estimates that this is 2% lower than the average payout of £12,162 for 2010/11.

EMW also worked out that £6.9 billion of the total of £9.4 billion made in redundancy payments in the past two years was tax-free. This means that almost three-quarters (73.4%) of this total went untaxed by HM Revenue & Customs (HMRC).

The rules of redundancy

How much individuals receive when they are made redundant varies enormously. However, there is a statutory legal minimum payout for redundancy, which depends on your salary, age and length of service. Sadly, the statutory minimum payout is far from generous, as is explained in What to do if you're made redundant.

So, what can you do to make sure that you bag the most generous redundancy windfall that your employer can pay? These eight tips will help:

Be first out the door

Generally speaking, the biggest payouts are made to the first wave out the door. With each round of redundancies, the company coffers get increasingly depleted, reducing payouts for future departures.

Contact your union

If you are a member of trade union (or, failing that, have a staff committee), then contact your local representative. Your union steward or rep should be fully versed in the statutory and employer procedures surrounding redundancy and, therefore, able to give you sound guidance.

As well as the statutory minimum payout, your contract of employment may include enhanced terms for redundancy. For example, one month's redundancy pay for each full year worked is a common uplift. Therefore, check your written contract to find out what is potentially up for grabs.

Always negotiate

When redundancy looms, workers who leave meekly and without a fuss simply leave money on the table for bold bargainers to pick up.

Most bosses hate to make people redundant, as they prefer to avoid the stress of arguments, accusations and strong emotions. Therefore, striking a bargain to leave quickly and quietly usually produces higher payouts. Consider this extra cash a reward for showing your employer an easy way out.

Demand enhanced benefits

Instead of asking for a higher redundancy settlement, try negotiating for higher non-cash and other benefits. This is particularly tax-efficient if your payout via payroll is likely to exceed the £30,000 tax-free limit for redundancy payouts.

Extra benefits could include an enhanced pension or an additional tax-free lump sum paid into your pension pot, keeping your company car or mobile phone, continued medical and/or dental insurance, even share payouts. Comb your contract to find out what benefits you can utilise as bargaining chips.

Sign a 'no-compete clause'

If you are in a middle-management or senior position, then your top bosses may not want to see jump ship to a major rival. Offering to sign a no-compete clause for, say, six or 12 months can pay dividends.

For example, more than a decade ago, I agreed to a 12-month no-compete agreement with one employer. By agreeing to this restriction, my exit package almost trebled -- even though I had no intention of ever working in that field again!

Agree a 'compromise agreement'

Your employer may struggle to find good reasons to make you join the redundancy herd. If you believe that this is the case (probably based on your experience, length of service and role), then you could smooth your path to the exit.

One way to do this is to agree a legal document known as a 'compromise agreement' to restrict your legal rights to sue your employer for wrongful dismissal, discrimination, etc. However, you should only sign this document in return for a substantial payout, as going down this route will restrict any future legal remedies against an ex-employer.

Hire a solicitor

Lastly, if you're finding your exit negotiations especially difficult, then it may be worth your while consulting a lawyer with expertise in employment law. You can do this by searching the Law Society database.

For instance, when leaving my last job as a 'suit', my company offered to pay £500 towards my legal fees. This sum got me two hours with a partner at a local firm who explained my options in full. In the end, I agreed to take what was on offer, but this legal consultation provided welcome reassurance.

Have you ever successfully negotiated a higher exit package? Please tell us how you did it in the comments box below...